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Is The U.S. Market Breaking Out?

Last week the S&P 500 reached a new 5 year high. The achievement was met with little fanfare, in fact the U.S. markets were reported as finishing the week down. The Dow Jones Index did finish down after making a new high the previous week. The Dow is now forming what looks like a text book pennant continuation signal. The Nasdaq finished the week up, but did not make a new high. It met resistance at the 5 year high it made last September. The Dow 2 weeks ago and the S&P last week, does this mean the Nasdaq is set to make a new high this week and break above resistance? Economic data is still rolling in just as tepid as ever. Signs point to a stable economy and I think that is enough to keep the markets moving up until the S&P reaches it’s previous all-time highs.

There isn’t much new U.S. data this week, only about 16 reports. Like last week, the most important one is claims for unemployment. This figure should be within the 12 month range and not a market mover. Earnings are also somewhat subdued this week. There are quite a few reports, over 400, but nothing that is going to shake the foundations of the rally. What is going to be important this week is the G20 meeting. There is undoubtedly going to be conversations, interviews, news reports and speculation to ruffle market sentiments.

I also expect to hear more about the so-called currency war that sprang up in the news last week. The topic, or at least the causes for its rise to the spotlight, will likely be one of the major points discussed by the G20. Currency trades could experience some volatility this week, especially Euro and Yen based pairs. What I have to remember is that the fundamentals in currency have not changed but this week could be the signal that change is on the way.

1. S&P Making A Break For It

S&P 500

Call/Put = Call

Expiration = monthly

Entry = below 1520

My Trading Advice in 50 Words

The S&P made the opening moves in a break to the upside last week. After consolidating over the previous 5 days the index moved above the 1515 level and held it into the close. Trading was volatile during the week but remained inside a tight range. This range has manifested into a potential flag/pennant and the break above 1515 on Friday supports my position. The underlying fundamentals of the U.S. market have not changed nor are they likely to in the near future. The FOMC expects the economy to remain stagnant for at least another year and so far there is no signs to the contrary.

This morning futures trading was to the upside. The 1515 level will be an important this week for day traders. This breakout will have longer term potential than just day or weekly trades. The move should take the index up to resistance at the all time highs over the next few weeks. I am trading a call with a monthly expiration with an entry under 1520. I will also be watching 1515 for signs of weakness, just in case.

2. Dow Following In Footsteps Of Broader Market

Dow Jones

Call/Put = Call

Entry = below 14,000

Expiration = end of the month

My Trading Advice in 50 Words

The Blue Chip Dow index is poised to follow in the footsteps of the broader market. The index is making what looks to me an even more obvious continuation signal than the S&P 500. The technical indicators on the weekly and daily charts are bullish, not something that I can trade against in good conscience. Upside projections for this move are between 750 and 1000 points.

I am looking for this index to break out of its bull pennant to the up side. I will be trading a call with a monthly expiration and and entry below 14,000. The G20 meeting could have some impact on trading this week but it should be short lived, at least in the near term.

3. Euro In Correction

Eur/USD

Call/Put = Put

Entry = above 1.3350

Expiration = end of the week

My Trading Advice in 50 Words

The Eur/USD trade corrected sharply last week after comments from Mario Draghi brought concern for weakness back into the market. On top of this the Eurozone has entered a period of political uncertainty that could end in a change of leadership in some of the most troubled countries. The comments and uncertainty brought the pair down to the short term moving average where it opened this week. Indicators are bearish and I think the talk from the G20 will have a bearish impact on short term exchange rates. I am trading the Eur/USD with puts this week with an entry above 1.3350.

4. Yen Running Out Of Steam

USD/JPY

Call/Put = Put

Entry = above 93

Expiration = weekly

My Trading Advice in 50 Words

The yen is running out of steam. Momentum traders carried the USD/Yen trade way past the target set by Shinzo Abe and now it looks set for a technical correction. Adding to this are comments from Japanese finance minister Taro Ase about the currency weakening “more than intended”. This has now put the possibility of and end to new fiscal stimulus firmly on the table. I expect the yen to correct in the near term before any chance of it sliding further. I am trading weekly puts on the USD/Yen with an entry above 93.00.

5. Germany Bouncing, Maybe A Top

DAX

Call/Put = Call

Entry = below 7650

Expiration = end of the week

My Trading Advice in 50 Words

The German markets corrected last week and dropped down to a long term support line. This line could possibly be the neckline of a reversal but it hasn’t happened yet. Near term global economic stability and rising U.S. markets should help the DAX remain above support and make a bounce back to the long term highs set two weeks ago. I am playing a call on the DAX with a weekly expiration and an entry below 7650.

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